2014 Business of Farming Conference: Farm Leasing Basics

Farm Leasing Basics
ASAP Business of Farming Conference, February 22, 2014
Eric Mine – Land Loss Prevention Project

All Rights Reserved 2014 - Eric Mine, Esq., Land Loss Prevention Project

So You Want to Lease Land for Farming
• What will the agreement look like?
• What will I be leasing?
• How and what will I pay?
• Who is responsible for what? And what can I do?
• What if I want to end the lease?
• Could or should I use a business entity to lease the land?


What will the agreement
look like?
-Written vs. Oral
-Required contents


Lease Agreement
• Should I have a written
lease?
– Yes
• Could I use an oral lease?
– Yes, in some cases. But
don’t.
• Should I record the
lease?
– Yes (sometimes
required)

Lease Agreement
• What MUST be in the lease?
– Identity of landlord
– Identity of tenant
– Description of land to be leased
– Length of the lease
– Consideration to be paid
– Signatures of parties to be bound

• What SHOULD be in the lease?
– Everything else you can possibly think of

Lease Agreements – Writing Required
• NCGS § 22-2. Contract for sale of land; leases.
– … all other leases and contracts for leasing lands exceeding in
duration three years from the making thereof, shall be void
unless said contract, or some memorandum or note thereof, be
put in writing and signed by the party to be charged
therewith, or by some other person by him thereto lawfully
authorized.


Lease Agreements – Writing Required
• NCGS § 47-18. Conveyances, contracts to convey,
options and leases of land.
– (a)
No … (iv) lease of land for more than three years shall
be valid to pass any property interest as against lien creditors or
purchasers for a valuable consideration from the donor, bargainer
or lesser but from the time of registration thereof in the
county where the land lies, or if the land is located in more than
one county, then in each county where any portion of the land lies
to be effective as to the land in that county...


Lease Agreements – Minimum Contents
• Purchase Nursery, Inc. v. Edgerton, 153 NC App 156
(2002)
– A valid lease contains four essential elements: (1) identity of
landlord and tenant, (2) description of land to be leased, (3) a
statement of the term of the lease, and (4) rental or other
consideration to be paid.


What exactly am I leasing?
- Property descriptions
- Length of lease
- Use and entry rights


Property Description
-Land
-Metes and Bounds
-Maps
-Buildings
-Descriptions
-Use
-Equipment
-Descriptions
-Use

Length of Lease
• How long should the lease last?
– Short Term
– Long Term
• Recording requirements
• Lease renewal
• Early cancellation clauses
• Special terms in certain counties; NCGS §42-23

Use and Entry Rights
• Rights of Way
– What’s on the other side of the property?
• Right of Entry
– When can the landowner come onto the property?
• Water Rights
– Wells, streams, ponds and other property
• Hunting Rights
– Who can grant access?

How and What Will I Pay?
-Cash vs. Crop Share
-Timing of Payment


Types of Consideration
Cash Lease

Crop Share Lease

• Pros

• Pros

– Fixed cost

– Risk sharing

– Little landowner
involvement

– Landowner cash inputs

• Cons
– You bear all risk
– Price re-negotiations

– Landowner buy-in
• Cons
– More complicated
– More trust required

Types of Consideration, continued
Flexible Lease
• Hybrid
– Base Rent + Bonus = Total
• Base rent - $/acre
• Bonus - % of yield or
revenue


Types of Consideration – Cash Lease


Types of Consideration – Crop Share Lease


Types of Consideration – Flexible Lease


Timing of Payments
• Cash Leases
– Typically paid on a certain date

• Crop Share
– Dependent upon harvest date and marketing

• Hybrid
– A mixture of the other two (as you might expect)


Who is responsible for
what? And what can I do?
- Terms of the lease


Terms of Lease Will Depend on Negotiation


Rights and Responsibilities
• Land Use
• Maintenance
• Labor
• Insurance
• Construction
• Damage
• Record Keeping

• Land Use Limitations
– Organic certifications
– Conservation practices
– Use of additives
– Crop limitations
– Subleasing and Assignment


• Maintenance
– What must be maintained?
– Who will do maintenance and repair?
– Who will pay for maintenance?
– Condition of property at expiration of lease

• Labor
– Will one or both parties provide labor?


• Insurance
– Hazard and Casualty
• Property Insurance
• Comprehensive General Insurance

– Crop Insurance
– Worker’s Compensation Insurance

• Limitations on Liability


• Construction and Improvements
– Removable Structures
– Permanent Structures
– Compensation for improvements
– Depreciation of structures


• Damage to leased property
– Who will repair?
– Who will pay?
– Maximum contribution from land owner


• Record Keeping
– Will you be required to keep records?
•
•
•
•

Farming practices
Additives
Expenses
Conservation plan

– When can land owner request/review those records?
– What are the consequences of bad record keeping?


• Other Considerations
– USDA farm payment agreements
– Environmental inspections prior to leasing
– FSMA
– Arbitration agreements


What if I Want to End the Lease
or Something Goes Wrong?
-Notice
-Disputes


Terminating the Lease
• Required Notice; NCGS §42-14
– Year-to-Year Leases
• Most common
• One month prior to end of lease term

– Month-to-Month Leases
• Less common
• One week prior to end of lease term

– Week-to-Week Leases
• Unlikely
• Two days prior to the end of lease term


Terminating the Lease
• Disputes
– What if I stay after the lease is over?
– What if I can’t complete a harvest before the lease ends?
• Special provisions in certain counties; NCGS §42-23

– What if landowner sells?
– What if I can’t pay?
• Crop Liens
• Misdemeanors


Could or should I use a
business entity to lease the
land?


Business Entities
• What sort of entities are possible?
– Sole Proprietor
– General Partnership
– Limited Partnership
– Corporation
– Limited Liability Company

• So what’s the difference?
– Taxes and Liability


Business Entities
• Advantages of LLC formation
– Management plan
– Succession planning
– Limitation of liability
• Must meet certain requirements

– Taxation

• Disadvantages of LLC formation
– Management plan
– Yearly filings

Questions?
Contact Info:
Eric Mine, Staff Attorney
Land Loss Prevention Project
1-800-672-5839
www.landloss.org

2014 Business of Farming Conference: Farm Leasing Basics

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